Friday, July 21, 2017

The casual observer could be forgiven for thinking that European antitrust regulators have declared war on American tech giants.

On June 27, the European Union imposed
a €2.4 billion (US$2.75 billion) fine on Google for giving favorable
treatment in its search engine results to its own comparison shopping
service. And Germany’s antitrust enforcer is investigating Facebook for asking users to sign away control over personal information.

In contrast, American antitrust enforcers have shown little interest
in these companies. The Federal Trade Commission (FTC) did open an
investigation into whether Google has a search bias, but closed it in
2013, despite recognizing that it “may have had the effect of harming individual competitors.”

Anti-Americanism, however, does not explain these starkly different
approaches. Europe targets homegrown companies with the same ferocity.
Last summer, for example, the EU fined a cartel of European truck-makers
even more than it did Google.

Instead, the divergence is explained by America’s abandonment in the
1980s of the theory that competition promotes innovation, which is still
embraced by Europe today. America now seems to operate under the theory
that competition threatens innovation by denying companies that develop
a superior product the rewards of monopoly.

My research suggests that embrace of this new theory has led to
under-enforcement of America’s antitrust laws, which may in turn have
actually held back innovation.

Betting on competition
The mission of antitrust law, first articulated by the framers of the Sherman Act in 1890, is to ensure
that markets contain large numbers of equally matched competitors.
That’s why Europe calls its own antitrust rules “competition law.”

The Sherman Act
implemented this goal by prohibiting two things: “restraint of trade,”
such as price fixing, and monopolization, the attempt of a powerful
company to keep competitors out of its markets. European competition laws have a similar bipartite structure.

The EU case against Google falls under the second category, monopolization, or as Europeans dub it “abuse of dominance.”

One of the most important and difficult areas of the law of monopolization involves infrastructure,
which can be anything from the roads that crisscross America to the
engineering standards that mobile phones use to communicate. Great
innovations, such as Google’s search engine, often become the
infrastructure that the next generation of competitors need to access in
order to create their own, innovative products. But the infrastructure
owner will often shut those competitors out, to maximize profits.

The goal of antitrust law would seem to require that its enforcers –
the Department of Justice and the FTC in the U.S. – sue to force owners
to share their infrastructure on reasonable terms with competitors.